Corporate Valuation and the Resolution of Bank Insolvency in East Asia

Djankov, Simeon; Jindra, Jan; Klapper, Leora

doi:10.2139/ssrn.200633

Cited by 24 publications

(18 citation statements)

References 13 publications

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“…And, in a seminal study, Slovin, Sushka and Polonchek (1993) document that client borrowing firms of Continental Illinois in 1984 faced an average abnormal return of-4.2% on their stocks 1984 around the impending bank insolvency date. Bae, Kang and lim (2002), Chiou (1999), Djankov, Jindra and Klapper (2000), and Yamori and Murakami (1999) confirm this result for Korean, Japanese, and East-Asian bank defaults during the 1990s.…”

Section: Banking Crisesmentioning

confidence: 71%

Bank-Firm Relationships and International Banking Markets

Degryse¹,

Ongena²

2002

International Journal of the Economics of Business

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Bank-firm relationships and international banking marketsDegryse, H.A.; Ongena, S. General rightsCopyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights.-Users may download and print one copy of any publication from the public portal for the purpose of private study or research -You may not further distribute the material or use it for any profit-making activity or commercial gain -You may freely distribute the URL identifying the publication in the public portal Take down policy If you believe that this document breaches copyright, please contact us providing details, and we will remove access to the work immediately and investigate your claim. Int. J. of the Economics of Business, Vol. 9, No. 3, 2002, pp. 401-417

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Section: Banking Crisesmentioning

confidence: 71%

Bank-Firm Relationships and International Banking Markets

Degryse¹,

Ongena²

2002

International Journal of the Economics of Business

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“…There have been many empirical studies on how the managerial conditions of banks affect loans to SMEs. Chiou (1999), Claessens, Djankov and Ferri (1999), Djankov, Jindra and Klapper (2000), Kang and Stulz (2000) and Ongena, Smith and Michalsen (2000) found that banks vulnerable to capital adequacy had negative effects on corporate fund raising.…”

Section: Related Literaturementioning

confidence: 99%

Are bank loans to SMEs procyclical? Evidence from an analysis of the lending behavior of Korean banks

Seo

2013

SAJBM

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This paper investigates the procyclicality of bank loans to Small and Medium Enterprises (SMEs) and to Large Enterprises (LEs) using aggregated and cross-sectional data from major private, foreign, and state-owned banks in Korea in the period from 1999 to 2008. Based on previous studies, it is hypothesized that compared to LEs, banks loans to SMEs may be more vulnerable to external economic shock. Berger and Udell (1994) suggested that bank loans to SMEs are comparatively risky due to their relatively low collateral and heavy dependence on banks for raising funds. In this study, empirical tests are verified by applying the rolling vector error correction Model (VECM), panel generalized least squares model (GLS), and the Clustering Fixed Effect Model. Findings include robust support for the procyclicality of bank loan to SMEs, but not for LEs. The review of short-term dynamics among first differential variables such as loans and GDP provides evidence to support a related hypotheses: the profit-oriented motivation of commercial banks in enhancing relationships with SMEs, the characteristics of governance structure in three types of banks (private, state-owned, and foreign owned banks), and the large-bank barriers assumption.

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“…These range from negative externalities, loss of charter value and growth opportunities, to possible contagion and an economy-wide credit crunch (Freixas, 1999;Djankov et al, 2005;Kroszner et al, 2007). Not investigating what seems to be a valid argument might lead to myopic policy recommendations: While, in general, we nd the positive eect to outweigh potential negative eects, there might be particular economic conditions where this is not the case.…”

mentioning

confidence: 81%

“…Positive eects of reestablished incentives might be outweighed by negative eects of individual bank failures, i.e. negative externalities, loss of charter value and growth opportunities, contagion, and credit crunch (Freixas, 1999;Djankov et al, 2005;Kroszner et al, 2007). Moreover, committing a type II error, i.e.…”

Section: Key Research Questionmentioning

confidence: 99%

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Catharsis—The real effects of bank insolvency and resolution

Korte

2015

Journal of Financial Stability

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implemented by relating bank assets that have been resolved after undercutting a specic capital ratio to all bank assets of banks that have undercut this ratio. Hence, the indicator essentially captures the idea of how rules-based failed banks are resolved. In addition,we construct a panel of more than 2 million rm-year observations containing economic performance data of non-nancial rms. As the relation between real economic growth and the nancial system might be prone to reverse causality and endogeneity issues, we employ an identication framework consisting of several econometric techniques which helps us establish causality.Our results conrm the hypothesis of a positive`catharsis eect' and yield three important ndings. First, we nd a comparably stronger implementation of a hypothetical positive capital closure rule to have a positive and statistically as well as economically signicant eect on individual rm growth. To underline the causality of this relation, we show that the eect is particularly pronounced for rms that are structurally more dependent on bank nancing. With regard to economic signicance, our results suggest that the`catharsis eect' can cause a dierence of roughly 0.4 to 0.6 percentage points in rms' growth rates. Second, investigating the transmission channels of the`catharsis eect', we nd that it essentially works through beneting better quality rms (`quality channel') and reallocating credit towards rms that need it most (`quantity channel').Third, additional analyses suggest that the`catharsis eect' works best under specic economic conditions, for example in open banking systems that provide high access to international nance and hence mitigate potential negative consequences of insolvent bank liquidation. All our ndings are robust to various specications.Taken together, our results strongly underline the signicance of bank insolvency and resolution for the real economy. AbstractIn general, banks play a growth-enhancing role for the real economy. However, distorted incentives for banks, depositors, and regulators in connection with bank insolvency may corrupt banks' credit allocation and monitoring decisions, leading to suboptimal real economic outcomes. A rules-based prompt resolution regime for insolvent banks may reestablish the incentive system and provide for economically superior credit allocation and monitoring. We test the hypothesis that regulatory insolvency has a cathartic eect using a large rm-level dataset and proposing a new indicator to measure the strength of catharsis. Employing an instrumental variable setup and an interaction approach, we try to overcome concerns about causality and potential endogeneity which are usually inherent to research into the real economic implications of bank regulation. We nd a comparably stronger implementation of a hypothetical positive capital closure rule to have a positive and statistically as well as economically signicant eect on individual rm growth -particularly for rms that are structurally more dependent on bank nancing. Our ndings ...

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Corporate Valuation and the Resolution of Bank Insolvency in East Asia

Cited by 24 publications

References 13 publications

Bank-Firm Relationships and International Banking Markets

Bank-Firm Relationships and International Banking Markets

Are bank loans to SMEs procyclical? Evidence from an analysis of the lending behavior of Korean banks

Catharsis—The real effects of bank insolvency and resolution

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